free market policies and welfare

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Free market policies and welfare.


The individual and the market.


“When an individual seeks his own advantage…and not that of the society …he is, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it”


(Smith 1776 in Anderson & Ricci 180 p.5)


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“One can go and talk for the under-privileged endlessly, but unless you’ve got the resources to change their state it’s just wind, isn’t it? …What we actually need is to create the means to do something about all the ills that so many people complain of”


(Tebbit in Young & Sloman 186 p.7)


The above quotes illustrate two aspects of free-market arguments relating to social policy. The first, taken from Adam Smith’s influential “The Wealth of Nations” outlines the theoretical basis of liberalism positing that individual liberty in economic affairs is for the benefit of both the individual and the society in which he/she lives.


The second outlines the rationale of the Conservative governments of Margaret Thatcher and John Major from 17 onwards. Using neo-liberal ideas to tackle the economic and social crises that had affected the country, these governments effected a sea-change in British politics, both in economic and social policy.


Free- market approaches to the economy begin with the primacy of the individual, pursuing his/her own self-interest. In the pursuit of this self-interest, the amount of property we own becomes a basic measure of who we are and the achievement of our goals. Therefore “…mechanisms which facilitate the growth of our property become vital tools for the enhancement of liberty as a whole” Coates 10 p.5.


To this end Smith and others formulated the notion that the best mechanism for achieving this end is the free-market. In a free-market, “…the aggregate weight of consumer preference can compel suppliers of all kinds of commodities to comply with consumer demands…Given freedom of entry into the market other potential suppliers are always available who will recognise the fact of consumer sovereignty. These characteristics make markets efficient, sensitive and speedy signalling mechanisms, doing spontaneously that which is impossible for the planning structures of command economies” (Pratt 17 p.5)


Therefore, markets act in the best interests of individuals, enabling them to buy goods they need at a price that is affordable. The laws of demand and supply produce an equilibrium price that is acceptable to both producer and consumer. (Arrow 174)


The individual and society.


When Margaret Thatcher famously said, “There is no such thing as society” (Woman’s Own 187), she was echoing one aspect of the ‘purist’ liberal thinking of Smith and his contemporaries. With the emphasis on the individual and his/her self-interest, liberal policies are often characterised as selfish, uncaring and concerned only with profit. Yet this is a fallacy. Coates (op. cit.) clarifies the matter, stating that the individual is also “…driven to act socially by the presence of innate desires/sentiments and…is able to do so effectively because of the ability to reason” p.47


Saunders (15) also recognises the role of the individual in a wider society suggesting that a shared moral framework is essential for the operation of a capitalist, free-market economy;


“Nineteenth century liberals such as John Stuart Mill believed that such a morality would be secure in a society of strong and free individuals, for he could not believe that educated and rational human beings would fail to understand how individual freedom depends on respect for others and how the self-interest of each demands a recognition of social duty and obligation by all “ p.11


Given this recognition that individuals do inhabit a wider society, this begs the question of how to define the relationship between the individual and that society. Liberal theorists are uneasy with State intervention, demanding that it play a minimal role. Mueller (17) suggests that the State take responsibility for supplying public goods and merit goods. Public goods are those for which there is a necessity, but no incentive for the market to supply � defence, clean air, street lighting, policing and highways. Merit goods are those that enable individuals to function as ‘active and purposeful citizens’ e.g. health and education. For the State to take on functions other than these is to interfere with both the market and, by extension, the individuals right to self-determination.


Deacon (11) outlines the relationship between the individual and the economic system; “Economic activities are means to an end rather than ends in themselves and people are in the market-place as part of their desire to serve purposes that are ultimately non-economic…all participants contribute and extract and the neutral and rule-directed market permits each individual to think their own thoughts and use the market for their own purposes, without accepting the ideas or styles of others with whom they deal, or because of differences having to avoid them” p.4


For Deacon, the individual liberty promoted by a free market is in direct contrast to notions of ‘equality’ and ‘social justice’ as alternative values. He suggests that the pursuit of equality is incompatible with liberty.


Saunders (op. cit.) is more specific on notions of equality; he is committed to equality of opportunity but also believes that biological inequality is natural. He suggests that individuals have innately different intellectual and biological faculties and in a free-market society people will ‘find their level’. Class stratification is, he proposes, a fair reflection of people’s abilities � a meritocracy.


He also believes in inequality of outcome. This is the ‘engine of capitalism’, driving innovation and effort. This is not an unusual position; as O’Donnell (17) points out, “even Marx argued ‘only’ for the principle of � from each according to their means, to each according to their needs” p.65. The argument is usually about the extent of material inequality � how much or how little it is acceptable for individuals to have in relation to each other.


Welfare, social justice and poverty.


Minford (187) takes issue with the term ‘social justice’. He points out that the term justice is concerned with legal rights, with all having equal treatment under the law. He argues that using State power to re-distribute wealth means that the better off are not being treated equally. Also, as Pratt (op. cit.) points out; “Because market outcomes are unintended they cannot be unjust since social injustice can only be caused by intentional acts. Consequently the moral demands of social justice evaporate” p.4


Taking this ethical argument as a given, Minford (op. cit.) states that there can be no place for ‘paternalistic egalitarianism’. By this he means the involvement of the State in using policies designed to effect a re-distribution of wealth and opportunity; hand-in-hand with this goes the notion that those in need require “…guidance and supervision in the use of the assistance given to them, because the same forces that made them poor also tend to make them incompetent, negligent or immoral” p.70. Such policies are, he argues, unjustified on economic grounds � they are expensive, wasteful and they need high taxation which stifles enterprise and innovation � and moral grounds � social engineering such as this represents an unjustified intrusion into the individual liberties of rich and poor alike.


The approach favoured by market liberals is that of the ‘safety net’; that the State should only intervene to relieve those individuals who are in poverty. How poverty is defined is, of course, open to debate. Commentators such as Mack and Lansley (18) favour relative definitions arguing that poverty is “…the absence of a minimum standard of living on socially established criteria and not just the criteria of survival or subsistence” (in O’Donnell op. cit. p.81) Yet liberals argue that relative definitions create a false picture. In a dynamic economy where the standard of living is rising, all members of society are getting richer, yet using relative poverty as a measure can create the impression that nothing is changing.


Given that inequality is one of the prime motivators of the market, liberals are wary of attempts to deliberately counteract one of its natural effects. Therefore, they prefer to use absolute poverty as the benchmark � an insufficiency in the basic necessities of life such as food, housing and shelter. As O’Donnell (op. cit.) points out, absolute poverty is rare and exceptional whilst relative poverty is increasingly commonplace in Britain in the last two decades although this has much to do with shifting definitions of what is an ‘acceptable standard of living’.


So, whilst the need to help those in poverty is recognised as a humanitarian concern by proponents of liberalism, the question is how best to do it. Norman Tebbit in the quotation at the top of page one re-iterates the belief that the widespread creation of wealth engendered by free-market economic policies can be utilised for the good of all; the ‘trickle down’ effect whereby the resources owned and earned by the rich find their way down through the strata of society for mutual benefit. This, it is argued, minimises the amount of people in poverty.


The other aspect is that a competitive, entrepreneurial economy will help to remove the ‘culture of dependency’ that can be a cause of poverty. Ironically, this is caused by the very State programmes designed to relieve poverty. Providing State welfare for those in need disempowers them; the security provided by welfare benefits means that individuals are unwilling or unable to remove themselves from the cycle of poverty.


Saunders (op. cit.) makes a distinction between those in poverty (by which he means, of course, absolute poverty) and what he has identified as an underclass. The underclass, he suggests, is characterised by four key features;


¨ Multiple deprivation


¨ Social marginality


¨ Almost entire dependence on welfare


¨ A culture of fatalism.


Whilst the first three outline a fairly bald statement of poverty, the ‘culture of fatalism’ is the very antithesis of free-market values. Moore (187) summarises the liberal opposition to centralised State welfare policies; “This kind of climate can in time corrupt the human spirit. Everyone knows the sullen apathy of dependence and can compare it with the sheer delight of personal achievement…The indiscriminate handing out of benefits not only spreads limited resources too thinly, it can also undermine the will to self-help and build up pools of resentment among tax-payers who are footing the bill” (in Brown 14 pp.15-16)





Neo-liberalism in the British government; the ‘New Right’.


Inspired by the neo-liberal policies advocated by Hayek and Friedman, successive Conservative governments from 17 to 17 set about a massive re-structuring of the economy and, concurrently, social policy. The Welfare State was seen as costly, inefficient and ideologically unsound. The government moved away from State provision, creating the ‘mixed economy of welfare’, divided up between the State, voluntary organisations, the private sector and the informal sector. The three key areas of change were;


¨ The drift from universalism � which, it should be noted, had been occurring almost since the foundation of the Welfare State � became more marked. Means testing for a wide range of benefits (e.g. Income Support, Housing Benefit, free school meals) became commonplace.


¨ The ‘privatisation’ of social policy and public services e.g. refuse collection, residential care, the sale of council housing. A key instrument in this policy was the introduction of the quasi-market, most notably in the fields of health and education. A massive increase in the voluntary sector was abetted by tax breaks and direct government funding. Hand-in-hand with this went notions of the individual as the ‘consumer’ of services and the Citizen’s Charter.


¨ De-institutionalisation through the ‘care in the community’ policies whereby dependent groups (most notably the mentally ill and people with learning disabilities) were re-placed in the community and with families.


It is important to note that these changes were motivated not just by economic demands and the requirement to cut the costs of welfare � although these were inevitably factors. There was a re-statement of the relationship between the State and the individual. Social rights were diminished to be replaced with greater individual liberty (Faulks 14) and, allied to this, a move towards a classical/liberal model “…where individuals can less easily escape personal responsibility and where ‘active citizenship’ will therefore have more scope” (Plant 184)


For some, this re-statement of responsibilities has negative overtones. The emphasis on ‘family values’ that was part of the New Right rhetoric is regarded by feminists as regressive and patriarchal. Writing about the ‘care in the community’ policy, Finch (184) notes “…for community read family, and for family read women, [who] have rightly been suspicious of attempts to increase such ‘community’ provision, seeing them as part of the political agenda of getting women out of the labour market and back into the home, to provide unpaid health and welfare services for members of their own family”


Williams (18) is also suspicious of liberal attitudes to women, arguing that writers such as Hayek and Friedman depict the family as a ‘natural’ unit, the implication being that the male is the wage-earner participating in the public market, whilst women are engaged in the private world of the household. Certainly there are some tensions in liberal writings; “…logically there is no good reason why a liberal theorist should exclude females…but in practice for three centuries the ‘free and equal individual’ has been a male” Brennan & Pateman 17 p.184.


Williams (op. cit.) also identifies the inequality of opportunity open to black people under ‘New Right’ policies. But she also acknowledges that this is more a result of the neo-conservative tendencies in successive governments than the neo-liberal strand; “The [latter’s] emphasis on the freedom of the market might lead to them disfavouring immigration controls as restricting the free movement of labour [and]…the impersonality of the market overrides personal discrimination” p.11


Braye & Preston-Shoot (1) point out the positive effects of the ‘care in the community’ policy’ and the increase in voluntary sector provision for those requiring social care the visibility and ‘re-humanising’ of people with learning disabilities who had previously been shut away in institutions; the increasing say that service users have in the running of organisations acting on their behalf; and the responsiveness of providers and enablers of services to the purchasing power that has been granted to the users.


Conclusion.


“The West is in the cold season of excessive individualism and yearns for the growth of community to allow human relations to blossom”


(Etzioni 15 p.57)


“Verily, the lust for comfort murders the passion of the Soul, and walks grinning in the funeral”


(Gibran 16)


Free-market theory consists of two interlinked strands. The first is the primacy of the individual, free from State control, in the pursuit of his/her self- interest. The second is that this self-interest is best achieved by access to goods and services available through an unregulated market that is necessarily responsive to the needs and desires of the consumer. The ‘invisible hand’ of the market promotes not just the interests of the individual but through wealth creation and the agglomeration of individual happiness promotes the well being of society as a whole. The role of the State is minimal, providing public and merit goods and administering a ‘safety net’ system of welfare provision for those who through no fault of their own encounter hardship. The Conservative governments from 17 onwards re-structured welfare provision, creating a simulacrum of the market as the most efficient and ideologically sound method of distributing limited resources.


Practically, there are complex issues surrounding the impact of free-market policies on individual citizens and it is for this reason that governments � including the Conservative governments of the 180s and 10s � do not ‘roll back the state’ to the degree that theory demands. Instead, policy tends to be contradictory, encouraging the market to develop in its own way whilst introducing regulation to minimize the risks of market failure. Criticisms of policy implementation regarding welfare provision can be distorted by the expectations engendered by the widespread acceptance of ‘cradle to grave’ social welfare and by the compromised version of liberal theory that exists in government.


The election of a New Labour government in 17 has not brought drastic changes. The acceptance by Tony Blair of the free-market means that there has been no return to the economic interventionist policies traditionally associated with Leftist governments. Yet however neo-liberal administrations propose to ensure welfare for those in hardship, and however it defines that hardship, there are larger issues relating to the welfare of society as a whole that stem from the concentration on increasing economic affluence for all.


Brown (11) points out the tendency of markets to fixate on the price of goods to the exclusion of what she calls the externalities � the social costs or social benefits. As an example, the low price of an apple may suit the producer who sells at a price sufficient to make a profit, and the consumer who can afford to eat apples regularly, with the consequent implications for good health (the social benefit). But if that apple is produced using excessive amounts of chemicals and environmentally unsound practices there is a social cost that is not reflected in the price.


Elliott & Atkinson (18) outline this argument further; they point out that the Index of Sustainable Economic Welfare (ISEW) in Britain has risen in the past with Gross Domestic Product (GDP) � itself a measure of the success of the markets. Yet from the late 170s onwards, the ISEW has fallen, due to rising unemployment, social exclusion, rising crime, habitat loss, environmental degradation and environment- and stress-related illnesses. By the mid 10s the ISEW had fallen to the level of the 150s


It is arguable that the fundamental beliefs of the liberal tradition have become the raison d’etre of society. The global spread of capitalism and the decline in the role of the State has been well documented. Multinational brands seek to define both our patterns of consumption and postmodernists such as Strinati (15) suggest that our “patterns of consumption increasingly dominate our sense of reality, and the way we define ourselves and the world around us” p.4


Yet increasingly others question whether this fundamental belief � the pursuit of self-interest through the market � is flawed. Birch (174) notes the ‘rise in non-material satisfaction’. This, he suggests, can be viewed as one of the social consequences of affluence rather than poverty. Seabrook (187) p.5 powerfully puts the lie to the belief that money and commodities can provide security and welfare, arguing that the market has become too great a part of our lives; “When everything is for sale, we want everything and yet we still want for so many things. Security, sufficiency, mutuality remain elusive, for they are not to be found in the realms of monetary satisfactions. Commodity substitution for our deepest yearnings is a profanation of our humanity”








References.


Anderson, James & Ricci, Marilyn (10) Society & Social Science A Reader Open University.


Arrow, Kenneth (174) General economic equilibrium purpose, analytic techniques, collective choice, American Economic Review vol.64 IN Brown, Vivienne (op. cit.)


Birch, R.C. (174) The Shaping of the Welfare State Longman.


Braye, S. & Preston-Shoot, M. (1) Empowering Practice in Social Care Open University.


Brennan, T. & Pateman, C. (17) Mere Auxiliaries to the Commonwealth Women and the Origins of Liberalism Political Studies, vol. 7 () IN Anderson, James & Ricci, Marilyn (op. cit.)


Brown, Joan (14) Poverty in Post-war Britain Routledge


Brown, Vivienne (11) Competitive Markets IN Brown, Vivienne (ed.) Work, Markets and the Economy Open University D10


Coates, David (10) Traditions of Thought and the Rise of Social Science in the United Kingdom IN Anderson, James & Ricci, Marilyn (op. cit.)


Deacon, David (11) A Liberal Approach to the U.K. IN Anderson, James (ed.) Social Science and Society Open University D10


Elliott, Larry & Atkinson, Dan (11) The Age of Insecurity Verso, New York.


Etzioni, Amitai (15) The Spirit of Community Fontana.


Faulks, Keith (14) What Has Happened to Citizenship? Sociology Review November 14.


Finch, J. (184) Community Care Developing Non-sexist Alternatives Critical Social Policy .


Gibran, Kahlil (16) The Prophet Heinemann.


Loney, Martin (ed.) (187) The State or the Market Politics and Welfare in Contemporary Britain Open University.


Mack, J. & Lansley, S. (185) Poor Britain Allen & Unwin IN O’Donnell (op. cit.)


Minford, Patrick (187) The Role of the Social Services A View from the Right IN Loney, Martin (ed.) (op. cit.)


Mueller, D. (17) Public Choice Cambridge University Press.


O’Donnell, Mike (17) Introduction to Sociology 4th ed. Nelson.


Pratt, Alan (17) Neo-Liberalism and Social Policy IN Lavatte, M. & Pratt, A. Social Policy A Conceptual and Theoretical Introduction Sage.


Saunders, P. (15) Capitalism A Social Audit Open University.


Seabrook, Jeremy (187) Living on Welfare IN Loney Martin (ed.) (op. cit.)


Smith, Adam (1776) The Wealth of Nations IN Anderson, James & Ricci, Marilyn (op. cit.).


Strinati, Dominic (15) An Introduction to Theories of Popular Culture Routledge.


Williams, Fiona (18) Social Policy A Critical Introduction Polity Press.


Young, Hugo & Sloman, Anne The Thatcher Years BBC Books.


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